Today’s businesses want their bottom lines to measure purpose, not just profit. But while cash is cold and hard, purpose is warm and fuzzy. Can you really build a business on it?
What are companies for? Genuine question.
Most of us will come up with the same answer: making money. And to confirm that hunch, the CEOs of America’s biggest companies have put their names to a statement saying that the purpose of a corporation is indeed to make profit for shareholders.
Then, in 2019, they changed their minds.
That was when 181 CEOs, members of the networking group Business Roundtable, updated their statement of purpose with a new commitment to “all stakeholders”. In other words, not just the people who own the $18 trillion of stock that these companies represent, but also the employees, customers, suppliers and communities.
“Each of our stakeholders is essential,” said the chief executives of Disney, Starbucks, American Airlines and dozens more. “We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”
It might seem self-evident that businesses should think about what their actions mean for everyone else. After all, companies couldn’t do what they do without educated workers, smooth roads, the protection of the law and customers with money to spare.
Business Roundtable’s CEO members are now explicitly accepting that responsibility to the wider community, saying they want to be part of an economy “that serves all Americans”. It’s hard not to read this as an admission that, in recent times, the economy hasn’t been doing that. In the words of Jamie Dimon, chair of Business Roundtable and CEO of the investment bank JPMorgan Chase: “The American dream is alive, but fraying.”
“It doesn’t make any sense to make profit at the expense of social good or the environment”
Rita Marques, Impactrip
No purpose, no point
Business Roundtable’s change of heart is significant, even if, for many, it feels like a no-brainer.
“It doesn’t make any sense to make profit at the expense of social good or the environment,” says Rita Marques, co-founder of a responsible travel startup in Portugal called Impactrip. The company helps match up volunteers with charities, and sends them on trips where they collect litter from the ocean, rescue wasted food from fields or help the homeless.
Marques worked in venture capital before starting the business, helping get countless companies off the ground. But for her, business had no appeal if it wasn’t for something. “It has to be meaningful,” she says.
“Seeking only to maximise profit does not work, has never worked and will never work”
Colin Mayer, Saïd Business School
The pervasive idea that companies must maximise shareholder value at the expense of all else has helped build the world we live in, in all its ingenuity, extravagance, inequality and ecological recklessness. But is that the world we want?
Professor Colin Mayer of the University of Oxford’s Saïd Business School, thinks not. Mayer specialises in the role of purpose in business, and in his book Prosperity, he argues that incentivising companies to prioritise ever bigger profits “does not work, has never worked and will never work. And everyone […] knows it but no one knows what to do about it.”
Deep down, argues Mayer, we all know that money alone can’t make the world go round, and that what brings us real fulfilment is in fact “worthwhile endeavour”. In other words: purpose. That’s why Business Roundtable changed its tune, and it’s why pretty much every business today has taken the time to craft a statement of its ‘values’ and ‘mission’.
Some of these statements turn out not to mean a lot. Oil companies talk about becoming “more sustainable” – as if there were another direction they could go. Facebook’s mission to “bring the world closer together” has often meant fuelling the spread of dangerous lies. Sure, words matter, but outcomes matter more. As Mayer says: “The tough part is committing to purpose to an extent that it becomes irreversible.”
Tough, but not impossible. One starting point is the B Corp movement.
Challenging business to do better
Over the past decade, more and more countries have been allowing businesses to be set up as so-called benefit corporations – with commitments to benefit society and environment built into their legal status. It’s a way of formalising the ‘triple bottom line’ that many businesses, including social enterprises, already shoot for.
The B Corp certification scheme, launched in 2007 by US nonprofit B Lab, aims to achieve something similar. To get the B Corp stamp of approval, companies must complete an impact assessment every three years, covering everything from pay and conditions to use of renewable energy, representation of minorities and management targets. Any activities relating to weapons, fossil fuels, tobacco or tax avoidance are red flags. Companies also have to update their founding legal documents with a firm commitment to work for the benefit of the wider world, and to consider employees, suppliers and others in every decision.
Not every business gets to be a B Corp: ordinary companies can expect to score 51 out of 200 on the assessment – and the pass mark is 80. But so far, more than 4,000 businesses including Ben and Jerry’s, Patagonia, Tony’s Chocolonely and Rita Marques’ company Impactrip, have managed it. Thousands more are working on it now.
The British law firm Bates Wells was the first in its sector to be certified as a B Corp in 2015, and now advises others on how to do it. Partner Luke Fletcher says that adopting a broader view of company purpose “changes the lens for decision-making by the board. It empowers the directors to balance the interests of different stakeholders, without the usual requirement to prioritise the interests of shareholders over other stakeholder groups.”
Perhaps the most important test for B Corps is what happens when things go wrong. Scottish beer maker BrewDog certified as a B Corp earlier this year, only for a number of ex-employees to accuse the company of having a “culture of fear”. BrewDog quickly commissioned an independent review – the outcome of which will be a high-profile test of how effective the B Corp system is at keeping businesses honest.
“It’s up to these 4,000 firms to show tens of millions of others that their prototype for the future of business can fly”
The movement has gotten where it is today without much in the way of legal teeth. In the UK, for instance, disgruntled employees or local residents can’t sue a B Corp’s directors for failing to live up to its commitments – only shareholders can do that, and it’s not clear how such a challenge would work in reality. “We are not aware of this issue having been tested,” says Fletcher. There’s similar uncertainty in many countries.
This is why B Lab wants its way of doing things to become the law. The organisation is pushing for governments to require the boards of companies to consider all stakeholders when making decisions. Proposals to change company laws are already being considered in the European Union and New Zealand, and campaigns are underway in the US, the UK and several countries in Latin America.
In the meantime it’s up to the 4,000 forward-thinking firms that make up the B Corp community to show the tens of millions of other companies in the world that their prototype for the future of business can fly.
No problem, says Rita Marques of Impactrip. Because purpose, as it turns out, is contagious. For Impactrip, that purpose is to make a difference for its NGO partners – but Marques also notices the impact on the volunteers themselves. “For some it’s kind of a transformational journey,” she says. Employees too, have been changed by the company’s mission – cleaners push for more eco-friendly materials, kitchen staff find new uses for uneaten food, directors suggest ways to use less water.
“I really do think that in the future, all businesses will be social businesses,” says Marques. “Because people will demand that.”